Public borrowing forecasts were far too gloomy

Yesterday we got news that the total net borrowing of the public sector was £42.6bn. This compares with the March 2017 budget forecast of £58.3bn. So the result was £15.7bn or 27% lower than forecast.

This reflects the general gloomy bias of official forecasts. It does matter, because Ministers rely on these forecasts to make spending and tax decisions. If forecasts are unrealistically gloomy they can also adversely affect confidence and outlook.

The public sector net cash requirement was similarly overstated in the Budget estimates.

I understand the difficulty of getting these forecasts exactly right, but they should strive to offer realistic forecasts.

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She obviously prefers Philip Hammond with his highest taxes for 40 years, his pension muggings, his endless tax complexity, his 15% stamp duty, his IHT threshold ratting, his taxing of landlords (and thus tenants) on profits that have not even been made, his 20% increase in insurance tax and his other totally misguided agendas, plus his endless waste everywhere.

May, like Hammond, clearly wants to drive out the rich and the hard working from the UK and to strangle the golden goose of the private sector they endlessly feed off.

The best that can be said of Hammond is that he is not quite as dire as McDonnall. Doubless before the election he will give us a give away budget just before he hands power to Labour and the SNP.

Perhaps the Government should appeal to the public to not buy any Premium Bonds or National Savings certificates etc until further notice. All we’d be doing is creating Government Debt! On the other hand if we spent our spare cash on bottles of whisky the deficit would fall even faster than it has!

The link between ALL borrowing in the UK and the current account trade deficit needs to be better understood. If in the UK as a whole, we are buying more from overseas than we sell, the difference has to be funded by borrowing. If the Government is simply pushing the borrowing requirement on to the private sector to minimise its own borrowing, it isn’t really a solution to the the problem.

Thanks Peter. This will be just brilliant when being told off for buying whisky. We can now enjoy a drink, knowing that we are helping the country to reduce the deficit, which will otherwise be a burden to the snowflake generation.

Try this. Imagine an island (A) government which want to bring its barter based economy up to date. So it introduces a new currency called the crown. In its first year the Government spends 100 million crowns into the economy and gets back 8 million crowns in taxes. So the Government now has a debt/deficit of 20 million. The population now have assets (in crowns) of 20 million.

The next year the island starts to trade with an adjacent island (B) . The inhabitents there will gladly take crowns for fish, coconuts, potatoes etc. Say our islands runs a deficit of 5 million crowns annually in trade. The inhabitants of the adjacent island start to accrue crown based assets too. Say the Government runs a balanced budget in the second year.

So we now have 20 = 15 + 5
Government Debt = Assets of Island A + Assets of Island B

Where did the crown denominated assets of island B come from? The crown is a monopoly issue of the Govt of Island A so ultimately they come from the Government. But in this case, we can see that the crown assets of B have come from the inhabitants of A. They had 20 million the year previosuly. Now they only have 15.

You could argue that the inhabitants have just spent their money and its not really borrowing. But it equally could be the inhabitants borrowing some extra money to fund their purchase of imports. This is the way economists tend to refer to any spending which results in a decrease in their net financial assets.

If the Government had run a deficit of 5 million in the second year it would be the Government and not the private sector which had funded the trade deficit.

Notice that households were in net deficit in 2017. They were spending more than their incomes using debt and dis-saving. As Peter says, not sustainable long term while the government is reducing its deficit for purely ideological reasons

All part of Project Fear mark 2. Brexit is causing havoc with the economy and is probably the main reason wants us inside the Customs Union.
We can’t allow little insignificant Britain plough its own furrow. We should have 10% unemployment and 135% government debt just like Italy
After all it’s a common trading area. We really shouldn’t be a success.

There is a serious problem of political bias in all manner of allegedly neutral institutions. The civil service, the BBC, the Electoral Commission, the Office for Budget Responsibility – all, all have been captured by a range of voices hostile to Brexit in particular and conservatism in general. If ever we get through the fraught and tortured period we are currently enduring, then a Conservative government with a clear majority must do one of two things: Either abolish most of these institutions or reform them, setting them under cross party oversight. More broadly we must see to it that civil society is not slanted by an infiltrated and indoctrinating education system, but that is a massive, long term project.

Hence why the Electiral Commission doesn’t give a stuff about students voting twice, provided Labour benefits, and why it keeps investigating Leave but won’t look at Remain spending even when given clear evidence that they should.

It is increasingly difficult to ever get a majority Conservative Government, partly because the constituency boundaries are so loopy. They should ALL be, without exception, the same size plus or minus 5%. And all Scottish, Welsh and Northern Ireland seats should not be allowed to Vote on English matters regardless of Barnett which needs to be abolished.

I have pointed out form the start that debauching monetary Policy had been vastly underrated as a demand management tool .
The 2% rise trailed and more had been written into household budgets and its removal represents a dramatic boost to consumer spending and borrowing
Sure enough the rate of private borrowing is eye watering and it is this that accounts for the buoyant tax receipts and jingling tills.
This is, quite obviously not a sustainable economic Policy

I think as with any MI, ministers should challenge the numbers more, as you would in any business but then again, leaving them at arms length allows Ministers to lay the blame elsewhere. Equally presumably it suits the Treasury to have ‘gloomy’ figures to curtail free spending Departments and its political position on Brexit.

Surely the answer lies in your hands, the forecasters are incompetent, get rid of them and find replacements. Only one problem. Performance management, not one of your strong points, indeed, non existent.

As I understand it these figures are due to a tax take increase, not some wonderful Governmental efficiency savings, or spending cuts.

Think how much better the figures would be if we did not have to spend/waste vast sums on the Foreign Aid programme, instead of supporting deserving cases in the UK.
I am given to understand we are now even supporting fishermen from many other parts of the globe, whilst we are likely to be neglecting and penalising our own.

I’m surprised it was given so little coverage in the media. Surely it’s something to be celebrated! Why doesn’t our Government seize upon anything positive like this to make the point that our country is doing well and will do even better after Brexit, despite the doom mongers?

Our representatives don’t appear to be very reactive in the PR department – and definitely not proactive!

It’s a similar situation with Trump – the media only report something about him that will make him look bad – which prompted him to have his own online media to tell the good news.
With our media controlled by a leftwing establishment, we shouldn’t expect any good news for things like BREXIT

Borrowing for 2017/18 was £1,400 Million, less than the OBR said it would be, THREE WEEKS before the of the financial year.

Virtually no ‘forecasting’ should be necessary so close to the end of the year. The figures should be nearly complete.

I bet this number will be altered again in one direction or the other when it’s ‘revised’.

Yet some people (especially Remainer and Left Wing politicians) pore over these forecasts stretching five years ahead, as if they were Gospel, and ‘cost’ manifesto commitments, sometimes running as far as six or seven years hence, to the nearest penny, and go on to detect ‘black holes’ in the finances at equally long distance.

This compares with the March 2017 budget forecast of £58.3bn. So the result was £15.7bn or 27% lower than forecast.

Ye s – I picked up on this yesterday. Most of the press focused on the OBR’s £2.6 billion over-estimate but this forecast was only made last month when 80% of the annual data was already known.

In addition to the £15.7 billion March over-estimate , there was a November 2017 estimate which was about £7 billion above yesterday’s ONS figure.

I also noticed another uptick in Corporation Tax receipts. (£54.4 billion -> £57.2 billion). It’s now looking as though lower tax CT rates could actually be yielding higher returns for the Treasury (even after adjusting for inflation and GDP growth **)

** I’d need to check on that as I suspect the selection of starting point could alter the results.

They should strive to offer balanced forecasts. Economic forecasting is a dark art it is true, and very difficult to get right. However, over time is reasomable and fair to expect the treasury and civil service forcasts to bracket the target; sometimes over-optimistic and sometimes pessimistic.
This is not the pattern that has emerged. They are relentlessly negative, and usually by a long way. Have been, coming up to and since the referendum.
If they are at all competent statisticians mathematically, this should tell them something: their models are garbage. The fact that this is visibly not telling them something is strong circumstancial evidence that should tell us something: they are not competent mathematicians at all, they are in fact politically motivated.

That this House approves, for the purposes of Section 5 of the European Communities
(Amendment) Act 1993, the Government’s assessment of the medium term economic
and fiscal position as set out in the latest Budget document and the Office for Budget
Responsibility’s most recent Economic and Fiscal Outlook and Fiscal Sustainability Report, which forms the basis of the United Kingdom’s Convergence Programme.

Reply THis is an annual exercise to remind us of our obligations under the Treaties to get our budget deficit and borrowing down. I have often spoken in these debates, but will not do so tonight as we are leaving, so this will all cease to apply soon I hope. I have no new points to make on why we should set our own economic policy

That’s a large error of forecasting not within tolerance margins surely. What happens to civil servants and department heads who repeatedly make false forecasts, who is the official ultimately responsible for this prediction? Serious question. You are correct that regular, repeated gloomy predictions affect people’s spending and plans, we are a nation that battens down the hatches if we’re told the weather will be dull we don’t buy new Spring clothes.

It’s like weather reporting, who pays for the weather forecasts we get from the Met Office? You can look sometimes and it just expects clouds and rain all month long, then we get a heatwave and it’s oh didn’t see that coming. Then we get told it will be snow and it isn’t. Does anyone ever check up on their forecasts?

Customers pay for weather forecasts. If they are not satisfied with them they go elsewhere. You must understand that the longer the range the fotrcast the more likely it will be wrong. Realistically, forecasts are nearly always acceptable up to five days ahead. Beyond that it’s informed guesswork.

I don’t watch the BBC weather? I didn’t mention the BBC? I look on-line on the met office and their predictions for next month are completely different to other weather reports all of the newspaper’s sources are predicting. I shared the information but it hasn’t got through moderation. I just checked up on Google and we are their customer as the taxpayer pays for the met-office “The PWSCG is mainly funded by the Department for Business, Energy and Industrial Strategy (BEIS) on behalf of Government. “

“Myth number one: Britain joining a customs union with the EU would solve the Irish border issue

The customs union issue refuses to go away because there still isn’t agreement on how to prevent a hard border on the island of Ireland after Brexit. But a customs union would not be sufficient to solve the issue.

If Britain were to remain in a customs union with the EU, there wouldn’t be any tariffs charged on goods travelling across the Irish border. But, given that Britain would have left the single market there would be divergence in terms of regulation. As a result, goods would be subject to checks at the border … ”

Well, that is unless the UK undertook to help protect the EU’s Single Market but by legal controls on its exports to the Republic, and the EU trusted that the UK would not allow anything to be sent across which the EU would regard as unacceptable.

At present the EU trusts the UK to control imports from outside of the EU so that there is no need to re-check anything at the Irish border, so why should the EU not trust the UK to apply effective controls on our exports to the Republic after we have left the EU?

Still borrowing a great deal off the backs of the public and public to be. Taxing at the highest rates for 40 years and delivering generally dire and declining public services too. Why does the government not just cut out the endless waste in government, the totally idiotic, damaging and pointless things they do and the large over remuneration and gold plated pensions in the state sector.

Cut all the daft regulation too to grow the tax base. High taxes of themselves are hugely harmful.

But no even more lunacies are planned. Idiotic gazumping regulations, gender pay lunacy, attacks on “fast” food outlet rules. Who will enforce these rules? The cannot even attend burglaries or bother with shop lifters currently!

Apples, bananas, carrots and wholemeal sandwiches are quite fast too I find! Is there much difference between a beef sandwich and a beef burger, or a cheese and tomato sandwich and a slice of pizza? If the people do not want to eat less and sensibly these rules will do nothing.

Please can you tell Hammond that taxing business on profits they are not even making just kills the business! He seem not to understand economics or taxation at all and want to throttle the golden goose to death and deter investment in the UK and the rich from living, working and investing there.

What is significant in recent years is that the error is always in the same direction making the forecasts too gloomy rather than too optimistic. This shows there is a built-in bias to make them so and that the prediction methodology is deliberately not being updated to eliminate this. Mr Hammond made an odd announcement the other day that “forecasts are there to be beaten”. This is nonsense, targets are there to be beaten but forecasts should be as accurate as possible, if they can be beaten they are bad forecasts.

“Mr Hammond made an odd announcement the other day that “forecasts are there to be beaten” well clearly he is a bit of a dope as we can all see and does not understand the difference between a forecast and a target!

In the Telegraph a week of two back he even was pretending he was tax cutting chancellor. The man is obviously totally deluded. Perhaps he is just “a low tax at heart” but never in reality man, in the Cameron mode.

His fiscal system is moronic, hugely damaging and absurdly complex (another tax in itself)!

I would much rather have my own parliament then a silly national day. Governance and a sense of control over ones homeland is more important than mere bunting and ceremony. Give me something real !

To blame Labour over ignoring England all the while this government tramples over the wishes of the English with its EU inspired Northern Power houses and Mayors is a bit much. You are all following the same policies that no one wants or needs.

What I am about to write is not directed at you personally, but at the total ineptitude of our MPs collectively. In 2015 we had about 26 MPs with Science and Technology degrees out of 650 in the Commons. Discounting the SNP , Greens and Lib/Dems there were 104 lawyers of varying disciplines. It is this Commons that has led the vendetta against the diesel engine that has been directly responsible for a 26% drop in production at LRJ in the past three months and 1000 redundancies. One can only guess at the damage it has done to the rest of our car, and vehicle industry both manufacturing and retail. All because in the H o C you are geared to opening your mouths before engaging your brain.

EU legislation for 2017 demands a maximum exhaustion of 168 Mg per Km. Bosch the leading manufacturer in Europe of fuel injection and numerous other automotive systems has just publicly announced that they have created an exhaust system that emits only 13Mg NOx in the RDE cycle or put another way 40Mg per Km.

If only those open mouth before engaging brain members of the H o C had had the wit to start asking question and investigating emerging technology, the 1000 at LRJ would still have jobs, and the retail customers would not be going round in circles wondering what to buy. All I can suggest is that those MPs who engage brain before opening moth get a grip on this situation before it is allowed to destroy some of our best manufacturing industries.

I was never paid for my comments on this blog. I never received any possible praise, for; my name and person were never revealed. In any event a comment on anyone’s blog does not change minds, too simple.
So, you have decided , JR, to limit and ruin my contributions.
Okay. I shall put a message in a bottle, throw it, if not a plastic bottle, in my local river. I shall gain more followers, more disciples ,to my Cause, not that I have one. Enjoy your retirement!
What was it all for? Who knows?

It will definitely affect our public borrowing if we are legally obliged to pay the entire ‘Brexit bill’ of £39 billion once the Withdrawal Bill is passed by Parliament, even if there is no trade agreement with the EU. The Comptroller General in charge of the National Audit Office claimed yesterday to MPs that the Withdrawal Bill would have the force of a binding treaty, so the money would become payable immediately.
And yet May has always told the voters that this sum is ‘only’ payable ‘if’ there is a satisfactory trade agreement.
John – Are you abreast of this extremely sinister development? It gives the EU an open invitation to offer little or nothing. May has just thrown £39bn+ of the taxpayers’ money away for no advantage at all.
Can Parliament not reframe this aspect of the bill to prevent this outcome?

This reflects the general gloomy bias of official forecasts. It does matter, because Ministers rely on these forecasts to make spending and tax decisions.

They shouldn’t! Government spending ultimately come back as taxation revenue unless someone saves it. So Government should not base its spending and taxation policy according to ‘how much is in the kitty’. When times are good the economy could overheat causing excessive inflation if this is the criterion used. Conversely, when times are not so good, any attempt to reduce a deficit by cutting spending and increasing taxes will send the economy into a tailspin of recession.

About John Redwood

John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.